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Factoring for government contractors is fairly common. Considering that factoring companies rely on the creditworthiness of the account debtor (customer) it makes the approval process certain. The factor does not have to worry other than to insure the particular Agency has a funded budget in place. We have seen situations where an Agency is trying to push through a contract prior to actually having an approved budget. These are usually situations where an existing contract is overlapping a fiscal year.

From our standpoint, we offer the government contracting firm the ability to aggressively go after more awards knowing that we stand behind them, ready to supply the necessary working capital to perform on a contract. Not only that, we will supply a letter to be included in a solicitation application. It states that your company has already secured the available credit in order to fulfill the requirements.

Once you have been awarded a contract, the CO will sign off on milestones or time sheets and the invoice is submitted. The advance we wire into your bank account which is used usually to pay labor and payroll taxes etc. With ongoing contracts this process will not disrupt the daily operations.

Factoring as a tool for government contractors is best used when the contracts are getting larger and coming in overlapping waves. The worst decision a contracting company can make is to go it alone and get behind on their 941 payroll tax obligations. The door to capital starts slowly closing until it is shut completely leaving you in the dark.

As I scroll through The Art of Factoring blog posts it is interesting that just about every aspect of the factoring process is covered in these articles. The first post to the blog was posted on August 21, 2005. In the following dozen years of posts, primarily focused on accounts receivable factoring, you can learn everything you would need to know should you be considering factoring as a method of commercial financing. The factoring industry has a fair amount of wrinkles, different specific terms and conditions, markets, costs, processes, interests and history. Most of this material has been covered in the over 650 posts to this blog.

As you can see this blog is not meant to be an income producing venture. There are no pop-ups, ads, come-ons or aggressive marketing. It was initially created to help you, the business owner, gain some knowledge about a form of funding that might not be familiar.

I would be happy to discuss your particular situation to see if factoring is a fit for your emerging growth company. Call anytime and let’s hash it out.

Access to capital is said to be the lifeblood of any business venture. Do you really have a viable company if you can’t finish the job after getting a contract? This can come up when we are contacted about factoring but they do not actually have invoices yet. The problem they go on to describe is a job half finished but not enough money to finish.

This is a classic example of an undercapitalized venture. Every new business must have enough capital to get started. Furthermore they need continuing ongoing funds to sustain and grow the business. Unfortunately factoring accounts receivable is not the right tool to get a start-up started from scratch. Get some customers, finish an order, then we can talk.

Depending on what your business is, you might need one or a combination of the following; borrowing from friends and family, seed or angle investment capital, credit arrangements with suppliers, SBA small business loan, or a small line of credit from a bank where the owner signs personally for the repayment.

Most of the time businesses fail due to lack of capital. Money is absolutely critical for all companies, insuring your access to it will reward you with success.

A company has been struggling to make a go of it and they’ve been bootstrapping using the owners personal resources. The company labors on for the first couple years maxing out credit cards etc. Finally they begins to gain traction and land some contracts. Meanwhile the owners personal FICO scores have taken a serious hit due to the start up phase.

Conventional sources of capital like the neighborhood bank are out of reach because of the weak personal credit. Although inundated with offers for quickie business loans, cash advance is an expensive and incorrect method to finance the lack of ongoing working capital to pay for payroll and operational expenses.

Enter invoice factoring where our decision to fund is based solely on the creditworthiness of the account debtor (the customer.) With factoring, a company is only limited by the credit reports we find on the customers – and we even look it up for you before you sell to them so you know up front what the payment terms should be offered.

So the main benefit of engaging factoring as a commercial finance solution is to transfer the indebtedness from you the client over to your customer who owes on the invoice for the work you already completed. You’re actually not borrowing capital, you are selling your own loans at a relatively small discount.

This handy tool is available in a quick and efficient manner meant to not disrupt your normal daily operations. Invoice factoring, call us for details.

Since we’ve been providing factoring services for a long time, I am aware of many of the questions that surround this commercial finance tool. Tool because that is what it is, a solution to fix a problem. There are many misperceptions about factoring; it costs too much, your customers will think you are having money troubles and once you start you can never get away from it.

So let’s begin with the cost – relative to cash advances and bank lines of credits. Under any measure invoice factoring is cheaper than fintech cash advance loans, but your access to the actual capital is just as easy to obtain and less onerous when it comes to paying the loan back. You can call up and say I need $100K in my bank account tomorrow and here is a batch of $125K worth of invoices (80% advance) and we will wire the funds the next day. But rather than pulling a daily or weekly payment from your bank account, your customer pays their invoice, thereby closing the transaction – done. So factoring is as easy to use as cash advance loans but much less expensive.

Of course getting a loan from a bank is optimal with regards to cost, but it might not be the best solution at this time. A bank will qualify your company for a credit limit. Once you have reached that limit there are very few options to access more capital. With factoring we grow right along with you, there is no limit other than the creditworthiness of the customer. Whatever threshold is feasible to have against a creditor like Home Depot, will be your limit. I might add that would be the same with a bank.

Our company is very hands on, when you send a message or pick up the phone you are talking to decision makers. We have no layers of administration and managers. We decide what to do, and we do it quickly. You will find a substantial amount of flexibility in the way we fund your company. As long as everyone’s needs are met, then we continue to operate successfully.

Here is a typical scenario of a company who has been trying to enter into the government contracting space. They have been struggling for a couple years having meetings with contract officers, identifying agencies who might be interested in their product or service. Meanwhile the owners are using whatever resources they have available to keep their company somewhat viable. This creates a real drag on the financial condition of the company as they try to win task orders and awards.

Finally the day comes when they receive a contract award, which unfortunately doesn’t start right away but will ramp up quickly once it does. This can leave the contractor in a vulnerable position. Due to the weakness in their balance sheet and income statement, qualifying for a bank loan could be a non-starter.

So how to access ongoing working capital on a regular basis to help fuel the new contract? This is a very good question for which receivables factoring is probably the best answer. Using factoring to provide the necessary capital to perform on the contract will increase the likelihood of more contracts in the future. By leveraging the accounts due on finished work to pay off labor and bills a contractor will keep the CO satisfied with the contract outcome.

Knowing which tools to use for the situation at hand is a sign of good mature management.

The main consideration underlying successful invoice factoring for your business is the need to have creditworthy customers. The factoring company decides whether or not to finance an invoice based on the credit background of every customer, as opposed to the financial condition of your company, our client.

Once in place, AR factoring should allow the client to be awarded bigger and stronger contracts with customers who regularly insist on payment terms from their vendors.

Typically the factoring company will set a limit for each customer based on their credit history. You can pro-actively assist in getting the best credit determination for your customer by keeping good records of incoming payments. This means, making copies of each check that the customer sent you (a good practice anyway,) and matching up the deposits on your bank statement. This way the factor can verify the credit history by seeing checks from the customer being paid on a timely basis. While it may seem cumbersome, it could have a significant impact on receiving extra credit for a customer on a contract that is growing. There should be apps available that help make this process easier.

This is an example of thinking ahead of the debt financing process. While some business owners may dismiss activities like these as problematic, smart owners will see it for what it is – the proper way to insure the greatest access to outside financing. A factoring company will only be able to consider the information it has available, by providing better, verifiable credit history, you may maximize the ability to gain access to working capital.

When borrowing capital from outside sources, your business model – how your company operates is a component that goes into the initial due diligence to qualify for financing. When a factoring company is considering a potential client for an ongoing relationship here are some of the items we will be considering;

1. Are all sales final – no consignments on product to be sold or returned
2. No pre-billing – submitting invoices prior to work actually completed
3. Are there many 90 day overdue payments on the AR aging
4. Are customers taking credits off the full payment on invoices
5. Will the customer allow for verification of the invoice
6. Do service contracts have milestone or progress payments
7. How many accounts are involved, are they comparatively the same size

Questions like these go into the process of determining whether a potential client will be a proper fit for invoice factoring.

There are a few nuanced benefits accounts receivable financing will bring in the form of organizational assistance to your operations. The first one being there is no long term liability on your balance sheet. No loan that needs to get paid off because you have already sold your loan – the invoice, to the factor. This relieves the stress of making loan payments and ultimately retiring the debt. Invoice factoring goes invoice to invoice and you stop and start as needed.

Another is closer to the operations itself. The factoring company is providing credit management on all your customers you are considering for invoice factoring. We make a decision on the credit availability of each account debtor aka your customers. This assures that you are not extending credit to a company who statistically might default on payment. Additionally, we verify with the customer that the invoice has been accepted in their payables system. This avoids any later issues like; “we never saw the invoice” or “we didn’t get what we ordered” or “you didn’t do the job correctly.” Excuses like these that customers use to slow down making a payment are eliminated during the verification process.

And finally, a conventional line of credit from a bank is based on the borrower’s ability to pull from the line AND subsequently make deposits to replenish it. Unfortunately what happens with many business owners is, they lack the discipline to make those deposits from their income to keep the line effective. Too often the borrower chips away at the line, taking money out and putting some or most but not all of it back as income rolls in. This allows the line to start to dwindle with a semi-permanent outstanding amount due to the bank.

Factoring alleviates this problem because, again, it’s invoice to invoice. The borrower submits an invoice for funding, the factoring company wires money into their bank account, the customer pays the factor back through the normal process of paying the invoice and the transaction is retired. Thus the factoring provides the discipline to put funds in use and retire them automatically.

So unlike other forms of commercial finance, factoring is a very hands-on form of working capital that offers more than the capital – it helps your company grow in a more optimized fashion. This is not to infer that factoring is preferable to bank finance, it is though a good tool to use for the proper situation.

When setting up what and how a company operates, try and keep it simple. When we get called into a factoring situation and the terms of sale are a convoluted mess, it makes it difficult to factor invoices.

This includes sales credits given, odd delivery arrangements, trade offs, selling through intermediaries or problems getting an acknowledgement from an account debtor. All or some of these problems can create a time lag to funding or even a complete roadblock.

There are some business owners who have a thorough understanding of whatever it is the company does but have a less than good idea about how best to run the business. This is easier when we can help implement terms on a deal rather than having to work around the results of bad decision making. At it’s core, accounts receivable factoring is a really easy to understand method of business financing.

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Flexibility, reliability, and dedication are the main ingredients to pursue when considering a source for your financing. Look no further than the steady growth and dependable service CCA provides all our clients. Click here to learn more.